Tax and Compliance at Tie Solution - What is "Compliance"
Compliance refers to the adherence to laws and ethical-moral standards by organizations such as businesses and associations in the business environment. The term 'Compliance' comes from the English verb 'to comply', which means 'to follow, fulfill, obey'. This includes specific measures to prevent illegal and unethical practices such as corruption, tax evasion, and child labor. Compliance with compliance guidelines and the appointment of compliance officers help to avoid violations of laws and norms, thus fulfilling an important prevention function.
From a compliance perspective, advertising and promotional items generally do not pose any problems. According to the „Code for Distinguishing Legal Customer Care from Corruption“ of the Corporate Compliance Working Group (as of January 1, 2017, p. 14 ff. and cited sources), they are considered „small tokens of appreciation“ and are unproblematic when used occasionally, as long as their value does not exceed 50 euros. However, stricter regulations for gifts apply in the healthcare sector (Pharma Code). Advertising and promotional items are not considered gifts, but rather advertising media and communication tools. Unlike personal gifts, they cannot influence the recipient in an unfair manner, as they are mass-produced, provided with advertising and are individual. They serve as „three-dimensional advertising“, convey messages and are intended to create preferences for brands.
There is no legally defined value limit for advertising and promotional items, as well as for gifts and benefits in general, in Germany.
Are the tax law valid value limits relevant for the compliance of advertising and promotional items?
No. The tax law valid value limits for advertising and promotional items are often mixed with the compliance argument. In fact, the two have nothing to do with each other:
• The 35-euro limit concerns the tax deductibility of donations to business partners. It is often heard on the customer side that promotional items should not exceed a value of 35 euros per person for compliance reasons (sometimes even per person and year). This claim is false!
• The 10 euro limit concerns the individual proof obligation for tax purposes.
Both value limits are meaningless for compliance with business partners
Promotional items
Promotional items that are considered as giveaways and whose acquisition or production costs do not exceed the amount of 10 euros (cf. § 37b EStG) can be fully deducted as operating expenses. If it is assumed that the 35 euro limit per recipient in a calendar year will not be exceeded due to the nature of the gifts, a collective booking is permissible. Typical examples of giveaways are pocket calendars, pens or similar items. There is no obligation to keep records of the recipients. However, the expenses must be recorded on a separate account called "giveaways" and must be booked separately from other gifts in the accounting. This separation is mandatory, as a deduction of operating expenses according to § 4 para. 7 EStG is only possible if expenses for gifts are recorded separately from other operating expenses. The obligation to keep records also applies to promotional gifts.
Definition of Gifts
Gifts are gratuitous benefits or services that do not require any specific consideration. With regard to the tax treatment of gifts, only business-motivated benefits to customers, suppliers, business associates, and similar recipients are relevant. Privately motivated benefits are not relevant.
Gifts up to a value of 35 euros
Expenses for gifts to customers, suppliers and business partners can be deducted as operating expenses, provided that they do not exceed a value of 35 euros per recipient in a calendar year (§ 4 para. 5 sentence 1 no. 1 EStG). For companies that are entitled to input tax deduction, the 35 euro limit is to be applied net. This means that these companies can acquire gifts up to a value of 41.65 euros (at 19% VAT) without incurring any tax. Companies that are not entitled to input tax deduction must include the VAT in the acquisition cost of the gift. In this case, the purchase price of the gift must not exceed 35 euros in order to be deductible as operating expenses. Discounts, bonuses or cash discounts also affect the price in tax terms. Transport costs to the recipient and packaging costs are not to be included in the cost calculation, unless the packaging has a significant value. In this case, the packaging costs must also be included in the 35 euro limit. Collective bookings are allowed,
Benefits to employees
Benefits to employees up to a value of 44 euros (including VAT) are tax and social security free (§ 8 para. 2 sentence 11 EStG). However, the exemption limit does not apply to cash payments or vouchers that can be exchanged for cash. The benefit must be granted in addition to the regular salary.
For non-cash benefits that exceed a value of 44 euros, taxes and social security contributions must be paid. However, there is the option of lump-sum taxation according to § 37b EStG. In this case, income tax is calculated on the non-cash benefit at a flat rate of 30 percent. The employer can either pay the lump-sum tax himself or pass it on to the employee. Please note that lump-sum taxation only applies to non-cash benefits to employees, not to gifts to business partners.
Sales tax treatment
If promotional items are given away that exceed the value of 10 euros net (11.90 euros gross at a VAT rate of 19 percent), value added tax must be paid. The value of the promotional item plus VAT must be included in the basis of the service to which the promotional item relates.
The recipient can deduct the value added tax as input tax if he is entitled to deduct input tax. If the recipient is not entitled to deduct input tax, the donor can claim the value added tax as input tax. In this case, however, the conditions for input tax deduction must be met.
Conclusion: When it comes to the tax treatment of promotional items, it is important to distinguish between giveaways, gifts to business partners, and benefits in kind for employees. Certain value limits and accounting obligations apply to giveaways and gifts to business partners. There is a threshold and the option of lump-sum taxation for benefits in kind for employees. The VAT treatment depends on various factors, such as the value of the promotional item and the recipient's entitlement to deduct input tax. In case of doubt, it is recommended to consult a tax advisor.
Disclaimer: We are not authorized to provide legal advice and assume no liability or guarantee for the accuracy of the information provided.